Photon Control’s “blockbuster” quarter gets thumbs up at Echelon Wealth

He expected a great quarter, but Echelon Wealth Partners analyst Amr Ezzat says Photon Control’s (Photon Control Stock Quote, Chart, News: TSXV:PHO) first quarter results blew away his expectations.

On Tuesday, Photon Control reported its Q1, 2017 results. The company earned $1.69-million on revenue of $11.9-million, a topline that was 65 per cent better than the same period last year.

“Revenue for the quarter is reflective of the buildup of inventory by certain customers in anticipation of the company’s move to its new facility occupied on May 1, 2017, pent-up demand for next-generation product introductions and robust growth overall in the semiconductor manufacturing industry,” said CEO Scott Edmonds. “We are pleased with our overall order activity and are confident in continued strength for the balance of the year, although we don’t expect the impact of the move to repeat for future periods. Gross margin at 60 per cent reflects an uncharacteristically favourable product mix and the benefit of our reduced royalty rate resulting from the new agreement reached as part of the litigation settlement with the former Photon R&D. With the litigation resolved, management, supported by a strong, involved board, is taking advantage of the renewed sense of purpose brought about by the integration of the former Photon R&D staff and the move to the new facility to build on Photon’s very strong financial and operational foundation for the balance of this year and beyond.”

Ezzat says he expected Photon Control to post revenue of $10.4-million, noting that the company’s strong momentum is continuing.

“The Company’s sales reflect both strong momentum in the Company’s underlying wafer fabrication equipment industry, as well as customers pre-ordering products in anticipation of production interruption during the Company’s transition to its new facility,” says the analyst. “Photon exposes investors to a solid and growing business at what we consider to be very compelling valuation levels. While we recognize the risks of customer concentration and industry cyclicality, we believe the Company presents attractive risk/reward characteristics at current levels.”

In a research update to clients today, Ezzat maintained his “Buy” rating and one-year price target of $2.00 on Photon Control, implying a return of 29.9 per cent at the time of publication.

Ezzat thinks Photon will post EBITDAof $11.2-million on revenue of $41.0-million in fiscal 2017. He expects these numbers will improve to EBITDA of $15.4-million on a topline of $45.7-million the following year.